Why borrow to invest?
By borrowing to invest (also known as gearing) you can boost your investment power by building an investment portfolio larger than if you did using just your savings.
Gearing can be used for a range of goals including wealth creation, saving for a home deposit, a trip overseas, children’s education or saving outside super. Similar to gearing into property via a mortgage, you can also gear into the share market with a margin loan.
What is a margin loan?
A margin loan is a line of credit that allows you to borrow money to invest in a wide variety of acceptable investments - such as shares, ETFs and unlisted managed funds - to gain additional exposure to dividends, franking credits and the potential to accelerate investment returns.
You can leverage an existing portfolio or create a new one to help meet your financial goals.
As Money magazine’s Margin Lender of the Year 2023, Leveraged provides clients with the flexibility to choose the loan that best suits their individual investment requirements.
The Leveraged Margin Loan is a flexible loan account offering a range of interest rate options, 3,000+ acceptable investments such as shares, ETFs and unlisted managed funds plus the ability to either manage the loan directly or use the services of a stockbroker/financial adviser of your choice.
Investment Funds Multiplier
Exclusive to Leveraged, the Investment Funds Multiplier (IFM) is a margin loan with built in limits and controls. In the event of a significant fall in portfolio value, you can reduce the loan through monthly repayments until the gearing ratio is restored to an acceptable level.
Financial markets update
Another RBA rate hike in November as expected, but still a wide range of market opinions for the path ahead. For our latest forecasts for interest rates and their likely impact on the economy, hear David Robertson Chief Economist Bendigo and Adelaide Bank.
Another RBA rate hike in November as expected, but still a wide range of market opinions for the path ahead. Our latest forecasts for interest rates and their likely impact on the economy.
The Cup Day rate increase was well anticipated after the recent CPI data, where core inflation accelerated to 1.2% for the third quarter alone, as well as a range of other factors all pointing to an even slower return to the RBA target.
Our view since the July pause in rate hikes has centred both on the likelihood of tighter RBA policy by year end, due to stubbornly high services inflation, and also, the view that rate cuts would more likely be a 2025 event, in contrast to an earlier peak implied by the yield curve.
The CPI data added to this likely scenario as both goods and services prices were firmer than expected, so demand is proving less responsive to higher interest rates than the RBA had hoped.
In contrast to other comparable central banks, who started their tightening cycles earlier than the RBA (and are now on hold), Australia’s official cash rate is back on the ascent, although a back-to-back hike in December is most unlikely.
The RBA statement announcing the rate hike noted the painful squeeze on household finances, and the longer than usual lag in this tightening cycle impacting prices, but remain ‘resolute’ in dealing with inflation.
History shows us how difficult it is to dowse the flames of inflation, in particular amid high global energy prices, but history also shows us how damaging rampant inflation is, so the RBA is right to prioritise this imperative.
When core inflation is back on target then rates can fall back to more neutral levels, but one of the challenges at present is tight labour markets. Having a 3.6% unemployment rate is a two-edged sword: strong demand for labour is supporting the cost of living crisis, however, the unique nature of the post-pandemic economy means a more resilient jobs market makes the RBA’s job of dealing with inflation even more challenging.
Other countries have started to see the tightness in their labour markets recede, and we do still expect the unemployment rate here to steadily rise, but it hasn’t so far.
The RBA Statement on Monetary Policy out later this week will show their latest forecasts for jobs, inflation and economic growth, and none of these are likely to indicate anything but a tightening bias for all of 2024.
Another challenge for the RBA in trying to achieve a better balance between constrained supply and excess demand is the strength in household spending, despite the extent of rate hikes so far.
The September retail sales data showed that household spending was up 5% year-on-year, and while that growth rate was over 9% for non-discretionary items,
even discretionary spending was slightly higher than a year ago. Non-discretionary spending was sharply higher for transport, healthcare and food, but there were also increases for discretionary items such as recreation, cafes and accommodation.
One of the questions for the RBA is the degree to which households are becoming accustomed to price increases and so are motivated to buy in advance of higher costs ahead; in other words, inflation expectations.
In summary, while not expecting another rate hike next month, the risk of another increase in February or May (after the next quarterly CPI releases) is material, and while economic growth and the jobs market have remained resilient, it’s important to be realistic about the timing of any interest rate relief, and to budget accordingly.
Fortunately, while the domestic economy slows, offshore demand is holding up well, and the prospect of more trade tariffs being lifted is a welcome outcome.
And that’s the market update from Bendigo Bank.
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